Van-ishing? Do we want to make vans in the UK?
– Professor David Bailey works at the Coventry University Business School and has written extensively on globalisation, economic restructuring and industrial policy, with particular reference to the auto industry. The opinions expressed are his own. –
Despite a run down in heavy commercial vehicle production in the UK in recent years, light commercial vehicles are still made in Britain in quite significant numbers.
However, this could easily change over the next few years unless something is done. The seismic changes that have unfolded in the world’s auto markets now threaten to eliminate mass van production in the UK, leaving just small niche production.
Today there are three main producers in the UK: Ford at Southampton, a GM/Renault joint venture at Luton, and LDV in Birmingham. The latter stopped production back in December when the double whammy of credit crunch and recession impacted.
On current trends, Ford, GM and LDV could be gone by 2012, with mass van demand then having to be fulfilled by imports. Jobs, capacity and R&D could be lost forever.
So, the question for the UK government is whether it actually wants van production in the UK. If it does, it needs to step in with an industrial policy to support production, starting with LDV.
Ford assembles vans at its transit van plant in Swaythling (Southampton). The firm has laid off staff at Southamptom and Ford itself has stated that it only plans to continue making the Transit panel van at the plant until 2011; after that the site will make only the chassis cab version of the model.
By 2011, production will be halved to 35,000 units a year. Volumes beyond 2011 are uncertain and are likely to be limited. Meanwhile, Ford has invested heavily in Transit van production abroad, and the firm is shifting mass production of the Transit (the “backbone of Britain” according to Ford) to Turkey.
Meanwhile, GM’s problems have led to a potential sale of its European arm to the Canadian supplier Magna, with financial backing from Russia via a government-owned bank and Gaz. The German government has offered almost 5 billion euros in short term financing and loan guarantees to effectively safeguard production in Germany.
Magna has openly discussed cutting some 9000 jobs in Europe and this leaves Vauxhall vulnerable as it is easier and cheaper to lay off UK workers. Current van production at Luton is scheduled to run to 2012. After 2012, the Luton plant faces a very uncertain future as Magna wants to expand into the Russian market and Gaz has capacity there it can use.
Last but not least, LDV is now on the edge.
Having offered a critical 5 million pound bridging loan to enable the Malaysian firm Westar to complete a takeover of LDV, the government’s Department of Business Enterprise and Regulatory Reform (BERR) pulled the plug last week when it saw that Westar had not raised the external finance needed to complement its own resources.
Yet this is an odd tautological logic. Even Tata, a huge conglomerate, has struggled to raise finance on the international markets because of the global credit crunch. So it seems that the government won’t intervene because the market won’t provide the finance – yet if the market did provide the finance the government wouldn’t need to intervene in the first place.
With no Westar takeover, LDV will go into administration on Monday. This opens up the possibility of another “lift and shift” of production, jobs and R&D out to an emerging economy like India, Russia or China.
This would mean an end of van production here in Birmingham, with a possible knock on effect on some suppliers who may well decide to pull out of the UK as well.
There are a number of things the government could actually do here.
It could take an equity stake in LDV (indeed, if Obama can nationalise GM, why can’t Brown think about equity stakes in UK firms?). An equity stake with Westar or another investor would also mean that it would have a say in keeping production in the UK.
Other key stakeholders could then take stakes. LDV’s major customer, The Royal Mail, might take a stake, and secure the supply of electric vans. Birmingham City Council might do the same. Such backing could then bring in private investors.
Alternatively, the government could provide a loan guarantee to Westar for the investment. This latter option – providing a loan guarantee for Westar to access the finance – would be the least risky and speediest option given where LDV is right now.
Such interventions have been seen in other countries and there is a case to be made for intervention here. Yet BERR has repeated the point that LDV hasn’t made a profit in several years.
This ignores the rather misses the fact that over the last few years some £600m has been invested in the award winning Maxus van range which could provide an ideal platform for the proposed switch into environmentally friendly green electric vans.
This electric can market is growing rapidly, especially in the depot-to-depot market in urban areas. Overseas this has been supported by tax breaks – something the government here could do to help LDV and Modec in Coventry. The electric Maxus is already developed and ready to roll, and LDV owns the intellectual property rights to the electric version.
As battery life improves and the recharging infrastructure in urban areas develops, this market will grow. LDV could be at the forefront of the proposed ‘green new deal’.
Put simply, there is a new market unfolding here, and LDV are effectively saying to the government: “put your money where your mouth is” when you talk about a low carbon future.
In support of LDV, a number of other points need stressing.
Firstly, the more than 25 percent depreciation of sterling improves LDV’s position regarding export markets.
Secondly, the firm is self-contained, owing the intellectual property rights and production facilities for the Maxus van in diesel and electric form.
Thirdly, LDV contributed around 7 million pounds in 2008 (not exactly a great year for the firm, remember) in PAYE and National Insurance to the government coffers. You could treble that by adding in the supply chain and dealer network. Of course, some of those firms and people might get other jobs and hence still pay NI and PAYE if LDV does close, but even a conservative estimate suggests that the government picks up a useful more than 15 million pounds a year from LDV’s operations. Add in more than 50 million pounds in purchasing and more than 50 million pounds in exports and you can start to see the value of LDV to the economy and the government.
Fourthly, we know from our research on the collapse of MG Rover that quality jobs matter and that three years on workers were earning 5,600 pounds a year less in real terms than when they were at MG Rover. The Rover Task Force cost the government 150 million pounds in picking up the pieces. And in this case, the LDV plant is in one of the most deprived areas of Birmingham. Many workers will struggle to move on, especially in the current downturn.
Fifthly, the government might be concerned that Westar would shift production overseas. In that case the loan guarantee could be converted to an equity stake with a golden share that would prevent this happening.
Sixthly, LDV management state that they have restructured and have cut costs and have brought down the output level where it can break even. The government needs to scrutinise this and if costs can be covered at around 10,000 units this remains a viable firm.
It really is time for BERR and the government to think creatively, both in terms of where the market is going, and how LDV – and indeed the UK van industry – can get there. LDV can still be saved and has some great R&D and products as well as a skilled and committed workforce. It can still be saved.